All Forum Posts by: Christian Carson

Welcome, Jason. This is the greatest resource for real estate on the Internet.

Thanks all for the insight. @Jeff Greenberg , you're right that this isn't a commercial property, but the agent is from a commercial brokerage and presented the deal to me in terms of cap rates. When I hear that I go into analysis mode and usually find that their cap rates are off by several percent.

In the case of the last prospects, my numbers (even generously construed) would demand that I make an offer for 33% less. The realtor called me again today and walked me through his pro-forma. When I pointed out that his property tax number was almost half of what it should be at that price, he said something about using an LLC to disguise the sale transaction from the auditor. I told him that wouldn't fly and he gave me a bit about how "we would like to sell it to someone who wants to owner-occupy this property." I told him that it's my plan to do so, but I'm not going to pay too much for a property regardless of how much I like it.

It seems like at least half of these realtors are trying to pull the wool over my eyes. That last comment that the realtor made just screamed "we're looking for a sucker!"

The most laughable part about this exchange is that anyone who would want to owner-occupy would be seeking conventional financing, which means that they couldn't use this LLC sale disguise method that he suggested. I didn't bother explaining that to him. I wonder if he knew that he was using the wrong tax number or not.

Privacy as a lawsuit deterrent is something of a red herring. The rationale is that a plaintiff's attorney won't be able to discover your other assets prior to filing suit. Frankly, most plaintiff's attorneys won't do an exhaustive asset search prior to filing. If the case is good, they'll file -- they know of the existence of one asset, the house, and that's usually good enough.

There are all sorts of strategies like sham notes or Nevada LLCs that are supposed to capitalize on this strategy. For most of us they're not applicable and won't help us avoid frivolous suits. If you're running 100-unit apartment buildings, it might help you avoid ADA claims looking for quick settlements. Once the suit is filed, however, the jig is up and you must respond via your attorney.

Pittsburgh toilet - Wikipedia, the free encyclopedia

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Poll your local realtors about what sells and what doesn't. For instance, an oil furnace in any Cleveland metro neighborhood is going to be an absolute dealbreaker for buyers (although the instance of this fuel type in the first place is extremely rare). In rural and farm areas, this won't necessarily be the case (although it's still problematic for younger buyers). It's best to ask the people who are seeing houses move in your neighborhood. When I was flipping in a 50s cookie-cutter neighborhood, a realtor once told me that a bungalow would fetch $85,000 on the spot, and a colonial, $95,000. He was absolutely on the mark in both cases. The people who are making the deals happen know best.

@Bill Gulley - How do you suggest verifying maintenance/capex in a way that's useful? When I've asked before, I usually get some line like "it has a new roof. No maintenance needed at all."

I just got off the phone with a gentleman selling two duplexes in my target buy area. He asserted that the prices asked were a "solid 8.5% cap," but a quick glance at the numbers reveal that all of the soft costs - capex, maintenance, vacancy and property management - were disregarded. I see this on a lot of properties.

Conversations about these numbers with brokers can get quite awkward -- I've had some tell me that it's industry standard to price multifamilies this way (no way!) and others say that the price is the price.

Are these kinds of deals just dead in the water or has anyone had any success sending off an estimate of the true value based on actual expenses? These deals would be worth it if they actually delivered 8.5% cap.

Ohio is pretty landlord-friendly for one specific reason: with few exceptions, withholding rent is never a remedy for a tenant. If a tenant complains of code violations, he/she MUST deposit the rent in escrow with the county clerk, or the landlord can evict. Interestingly, very few tenants know about this law.

Goal-setting is very important as @Brie Schmidt mentions.

The answer really depends on how averse to debt you are, and people have very different tolerances for debt. Since I had no money when I started in real estate, I have no problem with taking on debt.

I also buy properties well below their market value, and create equity out of thin air through repairs. Thus, a $30k loan on a house worth $80k doesn't scare me too much. The cash flow is just too good.

In more robust markets, leveraging is far more dangerous since a long-term vacancy or some kind of casualty loss could really sink you. This will really depend on your potential return on investment. For me, a $200 mortgage payment on a house renting for $1200 isn't that much of a risk!

Calculate how much vacancy you can afford in a rental property. Add together the costs of a 2, 3 or 4 month vacancy. Leverage is just fine if you maintain a contingency fund to keep you afloat during periods of distress.

The answer to this question depends on two critical items:

1. The lender's policy

2. Logic

Policy. A lender is going to know you are in default as soon as you change the named insured on your policy. If it's their policy to initiate some kind of default proceedings notwithstanding the considerations in item (2), you may be out of luck.

Logic. If rates aren't much higher today than what they were when your loan was written, the lender will be essentially throwing away legal fees to no discernible benefit. However, if your loan is fixed at 5% and current market rates are 15%, you can bet the farm that they're coming after you.